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5/23/09

Wow, to actually, finally read a report in the English language about the growing scandal around Peru's heavily massaged GDP numbers is incredibly refreshing, dudettes and dudes. There's now a small glimpse of sanity at the end of a long, dark tunnel. Check out the Reuters report below.

Doubts grow about accuracy of Peru GDP numbers

LIMA, May 22 (Reuters) - Official statistics on economic growth in Peru may be too optimistic and painting a picture showing economic expansion when in fact the Andean country is in a recession, two Peruvian academics said.

Peru's statistics agency, the INEI, started working with a new methodology for calculating gross domestic product in 2007, and its results sharply diverge from the previous model.

Bruno Seminario, an economics professor at the Universidad del Pacifico in Lima who has taken current data and run them threw the old model, says Peru's economy is in fact shrinking at a time when President Alan Garcia says his country is largely sidestepping fallout from the global downturn.

"This change (to a new methodology) has generated so many distortions that nobody knows what's going on," Seminario told Reuters in an interview on Friday.

INEI director Renan Quispe, who declined to comment for this article but in the past has insisted he has "improved" the method for calculating GDP, has measured growth at 3.14 percent in January, 0.19 percent in February, and 3.05 percent in March using his new methodology.

But Seminario said that when the INEI's previous model is used, the numbers look much worse and show economic contraction of 0.51 percent, 1.38 percent, and 1.71 percent in each of the first three months of this year.

He said Peru is suffering a recession similar to the one it fell into after the 1997-8 Asian financial crisis, and that Peru's economy has ground to a halt after surging nearly 10 percent each of the last two years on a boom in commodities prices.

Seminario said the results produced by the new methodology the INEI is using are counterintuitive at a time when other indicators and countries that rely on commodities exports are suffering sharper declines.

The current slowdown has caused critics to take a closer look at official GDP numbers.

Economists also complain that the new methodology is a bit of a black box, wasn't subjected to a public comment period by independent statisticians before being introduced, and that the official results suggest a series of flimsy assumptions were put into the new model.

"Nobody's seen the survey or the deflators," Seminario said. "The only sensible thing to do is for the INEI to publish both series of numbers."

He isn't the only critic.

Farid Matuk, the former head of the INEI who was fired from his job after Garcia took office, has also written that he thinks the numbers are inflated.

He has even gone so far to say that the government has filed several lawsuits against him in retaliation for criticizing the GDP numbers.

Garcia's chief of staff, Yehude Simon, denied that the lawsuits were politically motivated, local radio reported on Friday.

Critics say the INEI is being imprudent by deriving some key numbers from estimates, instead of actual surveys.

Still other critics have compared Garcia's administration to the Kirchner governments in Argentina, which private economists have criticized for manipulating official statistics for political ends.

"The strategy to alter part of the measurement of GDP is misguided because the sectors 'other services,' commerce, construction, among others, are measured between the four walls of the INEI," Matuk has said.

A comment on my IKN Weekly.... This is a very informative publication, and those flash updates...I took a position in XXXXXXXXXXXXX seven days later +25%. Thank you. TRY.to has also been great, in since .84 to .92 range. How about an update on TRY and or DMM in the weekly?

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As for those updates, WA, we'll be taking a quick look at latest developments inTRY.to and DMM.to this week but not doing in depth analysis, as tomorrow's edition has AUEX Ventures as its main fundy analysis dish. But as always there will be plenty more stuff on offer, including market watching, analysis of regional politics (with the aim of finding investment advantage, not just chewing the political cud) and an update on our 'Stocks to Follow' list that is up 11.3% on a level stakes basis since we started three weeks ago (even taking into account the hit that Cardero caused the portfolio this week). All that and more.

If you're interested in signing on for the service but have questions, feel free to drop me a line and I'll try my best to answer your query. Enjoy your weekend, dudettes and dudes. I'm now off to buy ice-cream for a small person who's been in bed for two days and is now feeling a lot better....she deserves a break. I'll be writing up the bits of the weekly that are still in my head and not yet in a computer archive this afternoon.

I just got sent this article by kind reader MF. Here's the link and here's an excerpt.

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"America has degenerated into a materialistic, corrupt, me first, soul-less society. Nobody is right. Nobody is wrong. Everyone deserves to win, even if they made horrible decisions. Unless this changes soon, this country is doomed. By 2020 the United States will essentially be an old aged pension fund with an army.

"The time for fraud, lies and deceit are over. Anyone within the banking industrial complex, from CEOs to loan officers that committed fraud must go to jail. If individuals lied on their mortgage documents, they should be prosecuted for fraud. If Hank Paulson and Ben Bernanke told Ken Lewis to lie, they should be prosecuted. If you borrowed too much and can’t make the payment on the house you are occupying, move out. You lose. Let prices fall to bargain levels and the winners in society who didn’t take on 150% leverage will buy the houses. A twenty year period of economic stagnation may be the best thing that could happen to this country."

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I have just two small quibbles with the article:

1) The use of the word America to mean The United States.2) The fact that it applies equally to other countries, not just the States. For example The UK and most western European countries are just as guilty on these scores (so don't start feeling smug over there, dudes).

Meanwhile, thanks to the vigilant and always cool Lillie at Memory, we can enjoy this cartoon found at Peruvian site Utero (here's the English translation and the original Spanish). Those spanish speakers amongst you should click through to the Utero post right here to check out the comments section; proof that some Peruvians do have social responsibility and are not all like that despicable Lima familyfeatured here yesterday.

1. A group of students go on a high ticket price end of school year vacation to Punta Cana, Dominican Republic

2. On returning, 16 of them fall ill with swine flu

3. In the house of one of the student group that hasn't (as yet) fallen ill with AH1N1, the family maid comes down with flu symptoms.

4. She is immediately fired by the family and forced to leave the house, thus losing all medical health coverage she might have had.

5. With nowhere to go, she gets a bed for the night from a family member in a poor local neighbourhood.

6. She goes to the local health centre where she and the other 10 members of the family that was generous enough to offer her a bed have now been placed under strict quarantine.

Isn't Peru a wonderful, socially responsible place? That trickledown economics strategy really working wonders again amongst the caring sharing middle class. Que viva investment grade, because this is just the kind of attitude amongst da movers and shakers that the financial world applauds.

Juan Sheput at his blog Mate Pastor made an excellent point today. The confirmation of 16 cases of swine flu(or AH1N1 if you insist) in Peru has caused consternation in Lima and headlines in all news media. The majority of cases are in a bunch of students who recently came back from their end of studies joint vacation to Punta Cana in the Dominican Republic.

However, even though it's only early in the Andean winter season there have been 42 children killed by pneumonia in the poor and high altitude Puno and Cusco regions of Peru. Here's what Sheput had to say (translated) and for the record I agree 100%;

Swine flu or AH1N1 has arrived in Peru and its spread is exponential. There are 16 cases at the moment, the majority of those students that ame back from their college "promo" trip to the Dominican Republic. They are therefore children from middle class backgrounds. We hope they recover quickly.

But at the same time 42 children have died of pneumonia in Puno and Cusco. They are not mentioned or worried about by Health Minister Oscar Ugarte. They are children aged between five and ten years. Is it true that the lives of the poor don't matter? It's fine that resources are earmarked to fight swine flu (around 60 million Soles), but the children of Puno and Cusco also deserve the same treatment, and not even a million has been set aside for them. They don't have antibiotics, vaccinations, heating or the thoughts of the authorities.

The figures for (Peruvian) children that die due to lack of opportune care in health centres and medical posts is extremely high. It is also unpardonable because the reasons for the deaths are totally predictable. Peru has never had the amount of economic resoruces that it has at the moment and it is therefore injust that children die due to this lack of care. Inequality in treatment is more than evident.

I couldn't help but notice that the BoD at MAG Silver (MVG) (MAG.to), the very same people that believe their stock is undervalued by Fresnillo, have been quick to cash out of the company recently and sell large lumps of shares. "That's a bit weird", thought your humble correspondent, "I mean, on the one hand they're telling the world that the FRES.L deal seriously undervalues their shares and on the other hand they're quietly selling their own shares to a willing world and preferring cold hard cash for their own accounts. What gives?".

Of course I was perplexed by this, as you could never accuse the management team of any Canadian junior mining company to be A BUNCH OF SCHEMING, LOWLIFE, TWO-FACED CAPITALIST PIGS OF THE WORST SORT (oops! capslock stuck for a minute there..apologies), so there must be a decent reason. Thus I cast the Otto infonet and heard back that the mgmt is selling a few shares "for tax reasons". So that explains the following, I suppose:

Peter Megaw has sold 46,000 shares since May 12th (just after receiving 11,250 options priced at C$5.54, too...ain't dat lucky?). Also strange is how he only sells his MAG Silver shares but doesn't touch his shares in either Candente or West Timmins.

R. Michael Jones, who holds inside shares in no less than seven companies, has deemed that only MAG Silver is worthy of selling "to pay taxes", dumping 14,500 shares of MAG.to this month. Oh wow, a 12,188 options handout last month for you too, Mikey...lucky boy.

CFO Frank Hallam managed to dump every single one of his 44,500 shares in MAG Silver on May 13th (got over six loonies apiece, too). And hey wow!!! He got 61,797 options granted to him in April, too. Ain't life grand, Frankie....?

So correct me if I'm wrong here, but (as just one example) a guy like Frank Hallam who was paid C$115,000 for his services in 2008 dumps over a quarter of a million dollars' worth of stock on the market just after getting a whole heap of newly minted options...and it's to pay off the tax bill that he himself should stump up on salary, not expect the company (or more precisely the shareholders of the company) to pay via slushy share dealings. Is that right?

It's that time again when we unravel the mysteries of the junior miners by making common sense the guff published in the news releases. Today's example is this PR dated 21st May (yesterday) from our old friends ECU Silver, miners of investors' pockets, a lot of zinc and a little bit of silver in Mexico. So with further ado.........

TORONTO, ONTARIO--(Marketwire - May 21, 2009) - ECU Silver Mining Inc. (TSX:ECU - News) is pleased to report that it has poured a total of 78 silver/gold dore bars in the past month.

The silver/gold dore bars have a total weight of 1,575 kilograms (kg). Assays indicate that these dore bars contain a total of 626 ounces of gold and 30,544 ounces of silver.

We have also poured an additional 13 bars this week, assays will be known later, and expect to pour 300 to 450 kg of dore per week, depending on silver assays of the feed.

We have sent samples of our dore to different interested buyers and are in the process of reviewing several term sheets from these potential buyers of our dore bars. The interest in our dore product has been very strong and we have so far received offers from seven different buyers. We have sold 730 kg of dore bars to date and have a planned shipment of another 1,100 kg for later this week to two separate buyers.

The oxide mill continues to operate very well. Over the next few weeks, we plan on increasing the throughput of our gold and silver recovery oxide plant to a rate of 500 tonnes per day.

TORONTO, ONTARIO--(Marketwire - May 21, 2009) - ECU Silver Mining Inc. (TSX:ECU - News) is desperate to report anything that might suggest they are actually living up to their name and mining stuff by wasting yet another PR to say it has poured a total of 78 silver/gold dore bars in the past month.

The silver/gold dore bars have a total weight of 1,575 kilograms (kg). Sounds impressive, huh? Assays indicate that these dore bars contain a total of 626 ounces of gold and 30,544 ounces of silver. We don't do the math for you to get you playing around on your calculator, but it's about $1m worth of metal. But what we don't mention is that we're still a development stage company and if we want to really be a producer we still need to spend a boatload of your cash to make all our inferred resources into measured and indicated, so if you're actually stupid enough to think we're going to make a profit any time soon you need to get out more.

We have also poured an additional 13 bars this week, assays will be known later, and expect to pour 300 to 450 kg of dore per week, depending on silver assays of the feed. We still don't know what they are despite having faffed around for gawd knows how many years, but let's be hoping that the head grades continue...fingers crossed!

We have sent samples of our dore to different interested buyers and are in the process of reviewing several term sheets from these potential buyers of our dore bars. We are also pleased to report that lunch will be served at 1pm, that the toilets are being cleaned regularly and that there's a plentiful supply of paper for each toilet cubicle that should last until the end of the month. Administration reports a successful procurement of paperclips that should arrive by courier any day now.

The oxide mill that we suddenly bought with your money while handing out long term, very low interest loans to management continues to operate very well, because if it didn't we'd never mention it to you. Over the next few weeks, we plan on increasing the throughput of our gold and silver recovery oxide plant to a rate of 500 tonnes per day, but as we're such bullshitters you never know if it'll happen, eh? But don't worry, we'll be publishing another inane "oh please look at me!!" PR on the subject especially designed for retail saps in the very near future

The Achuar of Peru. In 2005 Peru's health ministry found that 98% of Achuar living downstream from oil production camps had dangerously high levels of cadmium in their bloodstreams. Those living upstream from oil wells had normal levels. Sheer coincidence, y'know.

So there I was a couple of days ago lamenting that all MSM and newswires only tell the corporate government spin side of the story and miss out the indigenous viewpoint in the ongoing conflict over land and rights in the Amazon Basin. I'm now glad to eat my words and feature this Reuters report that just about hits the nail on the head on the issue. Well worth reading, so here it is.

LIMA, May 21 (Reuters) - Peruvian President Alan Garcia's push to lure foreign investors to the Amazon basin has run into homegrown opposition, with indigenous leaders saying he has disregarded a U.N. declaration that protects their rights to control land and natural resources.

Thousands of indigenous people have protested in Peru's Amazon for much of the past 40 days, hoping to pressure Garcia to modify or strike down a series of laws he passed last year that encourage oil, mining and agricultural companies to invest billions of dollars in the mostly pristine region.

The protests, which have already shut Peru's pipeline that carries oil from the Amazon to the Pacific Ocean, underscore the risks of investing in a country with a poverty rate of 40 percent and a history of discord between wealthy elites in Lima and poor indigenous groups in the countryside.

"Peru isn't respecting the U.N. declaration on indigenous rights," Alberto Pizango, the leader of the protests and the head of a federation of indigenous and environmental groups called Aidesep, said on RPP radio on Thursday.

The declaration, which is non-binding, was passed in 2007 by 143 countries. Though Peru sponsored the declaration, indigenous leaders complain the government is ignoring their rights to decide how ancestral lands and natural resources are used.

Pizango has gone so far as to announce an "insurgency" in his push to have laws that Garcia passed thrown out.

On Thursday, after politicians complained he was being incendiary and moved to charge him with sedition, Pizango said: "To us, insurgency means defending our natural rights and peacefully resisting excesses committed by the Peruvian state."

"We recognize the government's constitutional legitimacy, but it doesn't understand indigenous issues," he said as he called for environmentally sustainable development.

PRESIDENT SAYS LAND IS FOR ALL PERUVIANS

Garcia decreed most of the laws in question last year using special powers Congress gave him to bring Peru's regulations into line with the requirements of its free-trade pact with the United States.

But critics say Garcia took advantage of the powers and passed laws that weren't required under the trade agreement.

Garcia's chief of staff, Yehude Simon, has pleaded with Pizango to hold a round of negotiations in the hopes of reaching a deal that would end blockades of roads and ports that have left jungle towns short of basic supplies.

Argentine energy company Pluspetrol has trimmed output in the Amazon because of the protests, and state energy company Petroperu has halted its crude oil pipeline.

So far Pizango has balked at negotiations, leaving Simon and his cabinet to try to hold talks with other indigenous leaders who have less clout.

The government has also dug in its heels. It has imposed a "state of emergency" rule, which allows it to send in troops to break up protests or impose curfews.

And it has refused to make a concrete offer to get rid of the controversial laws or give tribes more control over lands in an area that makes up 60 percent of the country's territory but has just 11 percent of its population.

Garcia, a former leftist who now fervently supports foreign investment, has sold dozens of concessions to foreign energy and mining companies since taking office in 2006. More auctions are planned in a country where mineral exports drive economic growth and the government is working to become self-sufficient in oil production.

"The lands of the Amazon belong ... to all Peruvians and not just a small group that lives there," Garcia said over the weekend. "The riches of Peru belong to all Peruvians."

According to this report, doctors attending our friendly fascist-racist coup monger say that he's in a lot of discomfort due to the contraction of his heart arteries, causing very stong shooting pains in his chest, both arms and up to his jaw.

Branko dude, if you don't have your health, you don't have much.

Meanwhile, the much heralded meeting with US envoy Tom Shannon and Evo Morales went ahead as planned this week. Their meeting at the Presidential palace started right on time at 8am...and Shannon was out the front door at 8:30am. Seems like Dr. Morales has better things to do these days. Mind you, if Bolivia began to tell the USA about its strong economy and give advice on how to grow in a sustained way, control inflation, maintain a strong banking system and get the thumbs up from the IMF, the meeting could have lasted hours and Shannon might actually have learned something.

But we wouldn't want one side talking down to the other and trying to appear all superior now, would we..........?

In the recent IKN Weekly, the leverage NGD has to gold was discussed and, although not called as a buy, it was pointed out that the price target moves up quickly between $900/oz and $1000/oz gold. With gold moving to $950/oz today, the big move we saw today was pretty much expected Chez Otto.

5/21/09

Here's a chart showing the latest figures for electricity demand in China the incorporates May numbers published by Bloomie today.

Also, a must-read on the subject is this post by Yves Smith at the evergood Naked Capitalism. Interesting comments section, too.

Yes, Virginia, I'm still bearish on copper.

OT: Posting will be light today at this humble corner of cyberspace. Something will get added this evening for sure, but this may well be the last article of the trading day. Otto got family things to do chez Otto starting in about 20 minutes time (now gotta go grab that shower).

5/20/09

If proof were needed that Peru's GDP figures showing "growth" in 2009 are fabricated beyond measure, then that proof arrived tonight.

Bruno Seminario, leading economist at the UP Universidad Pacifico, has just published this report that shows just how much of a sham the Twobreakfasts government's GDP figures really are. You'll remember that since Twobreakfasts took power the INEI stats office quietly and without any warning, the INEI stats office changed bosses (to an APRA friendly guy) and changed the methodology of GDP calculation. Much of the heavy criticism in recent weeks has been about this change (see this to find out details) because much of the calculation is now done in an uncheckable, black box style that is easily manipulated for political ends (and by all accounts, successfully done, too). So what Seminario has done is to take the raw data and apply the old methodology, i.e. that used in the governments previous to Twobreakfasts, and see how things pan out.

The change is massive, and here's the chart.

Instead of the 3.05% growth rate recorded by the present dubious method, March 2009 comes in at -1.73%, a stunning turnararound of 4.78%. In fact, according to the old method, Peru has been in recession for the whole of 2009. It now becomes clear why this bunch of liars wanted to change the method and also said nothing for three years about the changes. The difference between the two methodologies is just too great to dismiss and must raise serious, nay fatal, questions about the way the data is being collated, calculated and disseminated at present.

The discredited economic policies of Twobreakfasts, Carranza et al cannot be hidden behind a bunch of falsified numbers. The road being taken right now by Peru is the same road taken by Argentina in 2007 when Kirchner decided to change the bosses at INDEC to get himself a bunch of new and better macro numbers. Soon enough, inside the country incredulity turned to anger and anger to laughter, but the world outside Argentina simply turned its back on the country as an invetsment vehicle. This is the chronic damage that is caused by cooking the macroeconomic books.

Bolivia gets told by the IMF that it has a strong economy, it should keep spending on social programs, its public sector is healthy and its banking system is strong. Don't say I didn't tell yas.

Mo' Evo, and the coin shown above is one of five that Chile (of all places) presented to Bolivia to mark te 200th anniversaty of the "shout for liberty in Latin America". This must be some sort of Chilean bribery technique (they're not very good at backsheesh in Chile). I'm just waiting for the "Now sell us your natgas, bitches."

Brazil, With Vitoria Saddi posting a neat analysis on the ever strengthening (literally and figuratively) Brazilian Real. With Lula in China the subject is whether the Real will eventually become a convertible currency (i.e. not needing to go via the dollar to do business with, for example, China).

Peru's Amazon basin indigenous vs Peru's government and hydrocarbons development; here's an excellent resource for Spanish speakers to find out the latest from the indigenous side of the argument. For the governmental side, just watch any Peru TV station or read any Peru national newspaper or international newswire.

Fronteer (FRG) up 3.6% at $3.49. I took half profits at $3.63 this morning, as mentioned to subscribers in a flash note (that had other snippets and things, too). 69% profit? Yeah I'll take that. Gary biiwii sold some too, FWIW. DYODD, dude.

Guyana Goldfields (GUY.to) up a penny at $3.11. Da Boyz are Back in Town and Da boyz want their tribute (cos...you wouldn't like...anything...nasty to happen...to that shiny little gold mining company of yours...would you?), so GUY.to has been armtwisted into handing out another $5m on its placement at $2.75 (plus the half warrant, bien sur). Eric Sprott happy. Eric often is happy. Eric's like that.

Capella Resources (KPS.v) up 4.4% at $0.47. News is that Capella is now being closely watched by the OSC due to suspicious recent trading activity. But you don't need to believe me; try asking the OSC or KPS.v mgmt or even its scammy IR company.

Eastmain (ER.to) up 3.3% at $1.27. If it gets to $1.30 I'm taking profits. DYODD.

The title was enough to make me cringe, "Will Brazil and Paraguay Go to War Over Itaipu?". I was already screaming "NO OF COURSE THEY FREAKIN' WON'T DUMBASSSSSS!" at the screen before the page opened, but when I got there it was even worse. Once again we are treated to the mental mastubations of a monolingual gringo that thinks he's some authority on his chosen LatAm subject (in this case the massive hydroelectric station on the Paraguay/Brazil border) because he's actually been to the place, done the 4 hour tour and read some report from the Diplomatic Courier and then some wiki page somewhere that said there might be friction over ownership of the plant and its energy production.

Believe me, Tim Hanson, you are a certified LatAm knownothing (proven by the fact you own CRESY, the world's worst agro stock run by a bunch of Argy crooks). Also noted are the two certifiable dumbasses that actually reco'd a spacewasting musing that does far more harm than good to the knowledge pool of your financial followers. You think there's an issue here? You pick a holiday snap and a report you filtered yesterday to make a point that there's a global resource grab going on? And you think this is worthwhile analysis? Oh my stars.

As I mentioned yesterday I was mystified, even taking into account "The Venezuela Factor", that the very positive news release from Rusoro (RML.v) wasn't greeted with more enthusiasm by the market. So being a humble corner of cyberspace that doesn't mope around and prefers to actually do things, yesterday afternoon I got in contact with George Salamis, President of RML.v, and asked him a few questions about the PR (as having once done a longer interview with the dude and all that). Below is the Q&A I had with him. Enjoy.

George Salamis: The Choco 10 expansion scoping study means a lot to us and clearly defines our value to be unlocked. To me, an alternate headline for this morning’s press release would read: “Attention to all mining investors and gold-lovers: Projected NPV’s for Choco 10 alone shown to be triple our current market capitalization”. This isn’t fiction, this is fact. The outcome of this scoping study shows that the combination of an expanded Choco 10 mine and a fully developed Increible 6 gold deposit creates an immense value driving opportunity for our shareholders. These two deposits, together, are company-makers by anyone’s measure. Gold deposits capable of sustaining 500,000 ozs per year, at a relatively low forecasted operating cost and non-nosebleed capital expenditure levels, are extremely rare. There aren’t many large undeveloped gold deposits left on the planet that come with sub-$300 million construction price-tags, as anyone at Barrick, Gold Fields, Anglo Gold or Goldcorp would attest to.

IKN: Personally I found it very positive news, however market reaction was rather flat on Tuesday. Any thoughts about that?

GS: Indeed, this scoping study news was extremely positive; Net Present Values in the $450 million to $740 million range depending on gold prices, projected rates of return above 50%. All very positive news and certainly the Choco 10 expansion scoping study has presented the most economically robust forecast of any mining project that I’ve ever been a part of.

Someone said the other day that Rusoro had become the Rodney Dangerfield of the mining world, “….Can’t get no respect”! I had a good chuckle from this analogy. What I can say from experience is that once the magnitude of this scoping study news is allowed to simmer in the market, this perception will change.

One unnamed journalist was brave enough to mention Km88, Las Cristinas and our Choco 10 scoping study, in the same sentence no less, in a question to me this morning, as in “Your scoping results are good, but surely what you have at Choco 10 and Increible 6 doesn’t stack up to Crystallex’s Las Cristinas gold project”. Well surely it does stack up to Las Cristinas and any other undeveloped world-class ore-body. I reminded said misguided journalist that 1) on an annualized production basis, during our projected life-of-mine schedule, we are projected to produce a lot more gold – 2 to 3 times more - compared to what’s forecasted at Cristinas or any of the other Km88 gold deposits, 2) our estimated head-grades are easily twice that of Las Cristinas and 3) at Choco 10, we’d be expanding off of a mine that already exists and is successfully producing gold now, whereas Cristinas would involve a completely new build, from scratch, at about twice the CAPEX estimated compared to our Choco 10 expansion.

Don’t get me wrong, I think Las Cristinas is a great ore-body, also world-class. Crystallex’s management have done a great job of advancing it to feasibility as did Placer Dome before them (a shameful plug for my old alma mater who also did some excellent work down there). The mining world has this warped fascination with the trials and tribulations of Km88 and I guess it’s because of the 15 plus years of controversy and excessive turf battles surrounding these projects. It’s always frustrating to witness the investor focus on Km88 and related negativity, in contrast to the great things that we have done in the El Callao district at Choco and Increible (and Isidora) during the last year on the gold production and operational end; increasing gold production, lowering costs, many positive changes meriting positive attention.

IKN: Is the growth time schedule to reach 500,000oz Au production feasible right now?

GS:This time schedule is achievable, however we’d have to hit the mark, timewise, on everything that needs to be done in terms of feasibility, permitting and financing for the Choco 10 expansion to 500,000 ozs or more of annual production. This includes resource to reserve conversion by doing detailed in-fill drilling, new resource estimates, detailed engineering studies, environmental studies, etc. We have a lot on our plates and by spelling all this out in a few sentences, I am by no means trivializing the task at hand. Fortunately, Choco 10 is an existing mine located on a permitted mine site, thus we’d expect that permitting the mine and mill expansion would not involve any significant hurdles. And then there’s financing, whereby one could potentially envisage the inclusion of some debt financing, given that our aim is to produce a bankable feasibility study in the end of the day. One should expect that it would be a lot easier to finance a new mine expansion under management with a proven production track record, a proven track record in working successfully with relevant permitting authorities and an outfit who has the Venezuelan government as a significant partner at one of their other gold mines. Anyway, one step at a time Otto, first we start with the in-fill drilling campaign and then move on from there.

IKN: What of Venezuela? All the world is hearing about nationalizations, expropriated properties and companies etc. The general view is that Venezuela is running out of finances and will take over any foreign company that dares to make a profit. Does this concern you?

GS: This is not of concern to us, but it is of obvious concern to mining investors who attribute such a considerable discount to our stock, relative to other gold producers. This is sad really, because the Venezuelan government has been extremely cooperative with us, be it in the management of our 50/50 mining joint venture with them, Venrus, or in the permitting of new projects. When we have had minor disputes in the past with the government, we have always resolved them quickly and amicably. In the entire history of our existence, we cannot point to one incident where we feel the Venezuelan government has short changed Rusoro or have tried to seize assets from us. I can’t see it happening, ever. Can I state this any more categorically? We don’t see nationalization or expropriation as a significant risk for Rusoro and its shareholders. As I’ve said before the perception of political risk, for us, resides only in the market.

IKN: We know that "the Russian connection" is strong in Rusoro, especially with the recent additions of two more Russian nationals to the management team. The perception is also that Russians have an advantage in running a business in the Venezuela of Hugo Chávez. How much do you agree or disagree with that?

GS: The Russian connection is strong in Rusoro and, indeed, having Russians working side by side with our senior Venezuelan management is a definite advantage. In addition to the recent Russian executive management appointments, we employ a lot of very skilled Russian mining engineers, metallurgists and geologists on the ground in Venezuela, in addition to a few Cuban professionals. So “yes” Otto, I strongly agree. We would not have made the tremendous strides that we have in gold mining, in Venezuela, without this.

IKN: I was sent a report with a call recommending RML today that contained the following extract.

Rusoro today released the results of a Preliminary Assessment, also known in the mining industry as a Scoping Study, completed by top-tier mining consultant Micon International. The Study uses US$700/oz gold for its base case, which we will also use in our assumptions, as Rusoro receives a 15-17% discount to the world spot price from the Venezuelan government.

So the question is, is it true RML is paid at a discount to spot for gold produced?

GS: We do indeed sell our gold at a discount to spot gold rates as other producers, past and present, have done in Venezuela for the past several years. This discount is imposed on sales by the numerous licensed gold buying entities who we do business with in-country. Our audited financial statements show these discounts as a cost of sales. This is a fact of life for all of those who produce gold in Venezuela.

The next edition of the IKN Weekly, as well as all the usual fun'n'frolics (our 'stocks to follow' list which is already showing an up-to-date 7.1% profit as of today, political development in Latam and how to profit from them, company news and view etc etc)will also feature a NOBS in-depth fundamental analysis report on AUEX Ventures (XAU.to) with reco, background, price target and all the usual stuff.

Yes you guessed it, this is a plug for the site service. You don't need to commit for more than a month, either, and at U$25 for a month it's a lot of insight for a small investment. The button is over there on the right and it's be great to see you come on board. Any queries on The IKN weekly you might have, feel free to drop me a line and I'll be happy to explain more. TIA.

Go to this link and watch the video report from Australia's ABC channel and watch a really solid, well made report on today's Colombia by Eric Campbell. He does an excellent job of giving both sides of the story and pulls no punches against both the FARC and the government. It's 25 minutes long, so before you hit "play video" make yourself a coffee and find a comfy chair, but do it anyway. This isn't a soundbite special, this is real journalism.

To labour the point, this is great reporting be in no doubt. So good to see a bit of straight talk on Colombia via an English-speaking medium. Here's the link again.

In response to the 2003 massacre of 67 people in the so-called "gas wars" of El Alto Bolivia, Bolivia has this idea of putting the alleged perpetrators on trial. These people are members of the last Goni gov't, of course, and include ex-Prez Goni who is hiding out in LandoftheFree as he finds the language easier up there.

So you'll recall that just before the trial started last week, three of the accused skipped Bolivia and went to Peru, asking for political asylum and claiming political persecution. Peru duly made its decision that they could stay without giving a single reason as to why it would hide yet another bunch of accused criminals.

The thing is, what Peru has done here, namely decide to harbour people under criminal charges, is against the laws of asylum and what's more against the laws of Peru itself. The case of Manuel BraveSirRobin Rosales from Venezuela to Peru is laughably thin, but at least he wasn't under formal charges when he legged it as his process hadn't got quite that far. But these Bolivian dudes just skipped over days before their trial started, having been allowed freedom of movement in the preparative stage. Hardly draconian.

Thus yesterday, Bolivia decided it would go to the Court of Human Rights in The Hague for a ruling on Peru's decision to harbour their accused with impunity. Of course Peru is throwing up its hands in mock horror, saying that Evo Morales faces an "international fiasco" if he goes ahead with this Hague idea. But y'know, I'm not so sure...from where I'm sitting Evo has very little to lose in the deal and might just singe a few beards on the way to getting his accused back. On the other hand Peru has an awful lot to lose, starting with the Twobreakfasts' worst nightmare: loss of international face.

...the number of children suffering from chronic malnutrition in Bolivia in 2003 and in 2008.

Doesn't seem much to you? Well, as 33.5% of Bolivia's 9.2m population are in the 0-14 age bracket, that percentage change works out to a touch under 150,000 children that don't walk around hungry any longer.

Add this to the report yesterday that shows how the school breakfasts scheme in Bolivia has reduced cases on anemia in kids from 37.2% to 7.2% in the period 2000 to 2008. Then add on the brand new "mother and baby" social coverage that give payments to uninsured families when mothers and their babies go for their medical check-ups. Yes, I know a U$10 or $20 handout isn't so much money where you're sitting, but.........

5/19/09

Here linked is the press release from Fortuna Silver (FVI.v) that hit the wires a few minutes ago. And below, by way of a small self-promo and a large fundy pointer, is the part of The IKN Weekly published last Sunday that took a look at Fortuna Silver and its 1q09 results published last Friday.

You could have snapped up FVI.v at 89c or 90c this morning, folks, but don't worry because this thing is going higher. This is what subscribers read on Sunday afternoon on half of one of the 13 pages of The IKN Weekly;

DYODD, dude.

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Fortuna Silver (FVI.v): Fortuna reported its quarter on Friday 15th May. The numbers were much as expected, with operating profit at Caylloma of U$4.23m and a final net loss of $1.06m once normal-looking land asset writedowns, machinery upgrades and exploration costs were taken into consideration. Two notable changes:

Firstly FVI.v is now reporting in US dollars to directly reflect its means of sales. This makes sense, but it did make me do a nasty double-take when I saw its current assets position at $37.9m, as I was expecting to see a Canadian dollar total there. After about 20 seconds of “oh my gawd where’s the money gone?” I noted the change. Moral; read the small print J

Secondly, FVI.v is now reporting its cash costs per ounce of silver after by-product credits (Pb and Zn). 1q09 came in at a cash cost of U$0.10/oz silver (10 cents per ounce). This will likely be used as a marketing promotional angle. It’s certainly eyecatching even for experienced FVI.v watchers like myself. The market likes positive soundbites.

Now for the practical stuff, as we can now refine our price target for FVI.v. Using the following parameters:

Friday’s closing share price of C$0.93 (U$0.79)

Reported NAV of U$112.9m

Current forex of U$1 = C$1.178 (reversed C$1 = 0.8489)

S/O total of 92.147m (the Continuum merger is now complete)

Fortuna is running a market cap of U$72.8m. This gives us a NAV multiple of 0.645X, a very low multiple for what is in essence a self-sustaining mining company with significant growth potential baked in via its Mexico project. There is every reason to expect that NAV multiple to return to a very sustainable 0.8X which would imply a share price of C$1.15 (note, Canadian dollar share price target) and an upside to Friday’s close of 23.7%. This is now our target price for this cycle of the stock and where we will take profits. So let’s be clear here; FVI.v is now a strong buy for short-term trading purposes. Final note: FVI.v will publish its news release about the quarterly report on Tuesday morning.

Cardero (CDY) down 26.9% at U$0.87. I sold mine a few minutes ago. Nuff said. Time to move on. Nunca mas

Rusoro (RML.v) up 3.4% at $0.46. This is almost as disappointing at CDY. The company releases a stonkingly good scoping study from its third party advisors and the move is about a 1/5th of the deserved one. Very tempted to add a few here, but need a headcheck first. DYODD

Nadagold (NG) up 6.1% at U$3.84. To round out my personal trifecta of pain I covered my NG short for an 8% loss this morning. And I kid you not, as the trade went through I heard Van Morrison singing "oh my mama told me there'll be days like this" on the webradio. Uff...I just hope they don't play any Leonard Cohen later.

Fronteer (FRG) up 6.2% at $3.24, just to remind myself that I can pick 'em occasionally.

The downdraft in Copper held at LME warehouses continues unabated and stocks are now down to 348KMT. The most recent part of the move is apparently due to cancelled deliveries, which is what happens when a copper producer agrees to send its wares to an LME bonded warehouse but then backs out of the agreement (perfectly legal, don't worry) before the alloted delivery date. This is usually understood as a copper producer preferring to send the metal directly to the buyer instead of to the middleman waystation...but it ain't necessarily so, Joe. Producers are also fond of higher prices (duh), so if they think the market will react bullishly to a lack of LME stockpile they might just decide to pile it up in their own backyard and not where the LME counts the metal. That's just one scenario of many.

But with that said Occam's Razor states that lower LME stocks = higher copper prices, at least in the short term. And with copper in backwardization (see that little chart from yesterday) there's little doubt that a short term squeeze is on the metal, no matter if it's actually being used or not.

Bottom line: I'm still bearish but aware of the bull case. I can't escape my own AdamSmithian baseline, y'see. Let the hedge funds and Chinese stockpilers have their place in the sun.

Cardero (CDY) (CDU.to) today announced that their deal to sell their Pampa de Pongo iron ore project in Peru with Chinese steelpeople Nanjinzhao has hit a large bump in the road. The $10m deposit that was supposed to have been wired to CDY didn't appear by the alloted 17th May deadline and the company reports that negotiations are ongoing about the final price, as Nanjinzhao don't want to pay the previously mentioned $200m total ticket price for the project due to world market conditions.

Two things to say (that may seem contradictory at first) and then a conclusion

1. I can't say I'm that surprised. Cardero is run by a bunch of promo artists and the Chinese are the only buyers out there. I thought that the Chinese would pay the $10m deposit and then stall on the final $188m settling price and not baulk at this intermediate stage, but that's my bad call.

2. I, dumbass dude with a blog, actually believed them! After the posts written earlier in the year I was sucked in by the story, I did background checking, invested DD time liked what I saw/heard and read and even called it a buy in the newsletter (that now has to suffer a hole in its "closed positions" section of the stocks to follow table). And I'm long CDY today. Not a massive, life-changing position and knowing that the risk was always there, but it doesn't take away the fact that I got it plain vanilla wrong.

Moral of the story: No more heeding siren songs, no more investing on the word of untrustworthy companies, no more bullshit management teams deserving of my $$. The beauty of capital markets is that you get your penance delivered in quick and undeniable form. There's never any way round a 30% or 40% loss, no excuses or "yes, but...." will ever make it disappear. You take the loss, realize you have failed, admit it, remember the dangers of ego in this game and try to reconcile the fact that a monetary loss can turn into a longer-term profit if the lesson of the loss can be learned and incorporated.

So having started with one Scottish poet I'll finish with another that I've already quoted on this blog at a time of philosophical loss-taking. Hugh MacDiarmid, take it away;

We must be humble. We are so easily baffled by appearancesAnd do not realise that these stones are at one with the stars.It makes no difference to them whether they are high or low,Mountain peak or ocean floor, palace, or pigsty.

There are plenty of ruined buildings in the world but no ruined stones

Up to recent times, criticism for the methods and results that attempt to substantiate Peru's economic miracle has been confined to a small group of hardcore economists, but now that's changing. The mainstream of Peruvian economists and even the most officialist and supine of its media outlets are voicing open and loud criticism at the way the figures are calculated and the obvious (really, truly obvious) inflation of results.

All the normal anti-Alan outlets have been pounding on this for a while, of course, but this report in El Comercio marks a turning of the tide. For those unaware, El Comercio is by nature supportive of the government (including Presidents from Fujimori, through Paniagua, Toledo and Twobreakfasts) but has a particular soft spot for the APRA party as they tend to favour the newspaper's owners with juicy construction contacts and other "legal" favours.

So when El Comercio reports on the stench rising from Peru's statistics office and the numbers massaged to an inch of their life, watch out. In the report El Comercio has a whole group of local names lined up and voicing their doubts, including site friend Jurgen Schuldt (who is, after all, a highly respected economist at the Universidad del Pacifico in Lima), Bruno Seminario (ditto very respected, ditto Pacifico) Kurt Burneo (ex head of the Banco Nacion, no less), Eduardo Morón, José Marthans and other names you'll not have heard of unless you care about the intellectual society in Lima.

On his blog this week, Schuldt really sums up the whole problem in one neat paragraph. Not a man to go for the hyperbole, he notes that the March GDP headline number is +3.05% and is left scratching his head when looking at the numbers that compose that growth:

"..It becomes difficult to understand how the "other services" sector could have grown 7% (that explains 86% of the total growth!) at the same time that there were abrupt falls in industrial manufacturing (-5.4%) and tax revenues for April (-18%) as mentioned by Farid Matuk and Bruno seminario amongst others questioning the amateur surgery being practiced in the INEI."

Exactly. That the sector "other services" is calculated in a totally secretive and non-transparent black box manner also screams manipulation, too. Put in very basic terms, all of the INEI figures that are collected in a public and verifiable way point to the same thing: Peru is in recession. But somehow, mysteriously, the Wizzrd of Ozness that goes on at the INEI means that these clear negative numbers are counterweighted by figures for other, non survey measurements that say "no, everything's ok..seriously...look at this number."

It's bull. Chile is in recession to the tune of 2.1%, as announced today. Chile is a strong country financially that relies very heavily on exports of metals to grow. Peru's export mix is uncannily similar to that of Chile but wants us to believe that it's growing 5% more than its Southern neighbour even though its financial system is weaker and political stability far more precarious. And it bases its argument on a set of cooked up black box numbers. It's ridiculous indeed, it's asinine, it's an insult to the intelligence. Three adjectives that can also be used to describe Peru's President, as after all that "get what they deserve" phrase works just as well down here.

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